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Mark,
you said:
++I wish there was an Omega Research backtesting
++product that would let me run this test across a portfolio of
++tradeables, all of them traded simultaneously out of the same
++account, but presently there doesn't seem to be any.
Well you might not be aware that you can do that with Wealth Lab Developer.
It is not an Omega product (and I am not quite sure why it needs to be an
OMEGA product), but it can do exactly what you wanted the Omega product to
do. I asume you like to see charts, entry/exit points, optimization, euity
curves and so much more. So if you are REALLY interested in a product that
combines the cabapilities from TradeStation and Trading Recipies you are
very much welcomed to contact me.
Regards.
Volker Knapp
Wealth-Lab Inc.
http://www.wealth-lab.com
http://www.wealth-lab.de
++-----Ursprungliche Nachricht-----
++Von: Mark Johnson [mailto:janitor@xxxxxxxxxxxx]
++Gesendet: Samstag, 3. August 2002 22:51
++An: omega-list@xxxxxxxxxx
++Betreff: Source code & equity curve results of zany new betsize
++algorithm
++
++
++I found an interesting new betsize selection algorithm
++(a/k/a "money management procedure") on the web. It intrigued
++me so I programmed it for backtesting software and tried it
++out myself. I wish there was an Omega Research backtesting
++product that would let me run this test across a portfolio of
++tradeables, all of them traded simultaneously out of the same
++account, but presently there doesn't seem to be any.
++So I used Trading Recipes instead.
++
++Then I compared the new betsize algorithm to that old familiar
++standby, fixed fractional. Ran them both and plotted their
++equity curves.
++
++The source code I used, and the pair of plotted equity curves,
++are at <http://traderclub.com/discus/messages/18/1431.html>
++
++ )
++ ) By Chuck LeBeau on Wednesday, July 31, 2002 - 12:58 pm:
++ )
++ ) For what its worth, here is one of my favorite money management
++ ) strategies. I think the easiest way for me to explain it is with
++ ) an example.
++ )
++ ) We will assume that the starting equity is $100,000.
++ )
++ ) We will risk $2,000 on each trade until our equity is below $80,000.
++ ) Once equity is below $80,000 we will risk $1500 per trade instead of
++ ) $2,000. At the $60,000 level we will risk $1,000 per trade. We could
++ ) continue to scale down these numbers as far as we want but this is
++ ) enough here to get the idea.
++ )
++ ) As you can see this is very similar to a fixed fractional strategy
++ ) risking 2% but I believe it is better. It is simpler and it allows
++ ) for quicker recovery from drawdowns than a fixed fractional strategy
++ ) because the position sizes are only reduced at threshold levels.
++ ) At $90,000 we are still risking $2,000 instead of $1800.
++ )
++ ) Now on the positive side I like to think in terms of risking the base
++ ) amount described above PLUS a higher percentage of the realized
++ ) profits. (I think that Tharp sometimes refers to this as "markets
++ ) money" but I disagree and prefer to think of all profits as
++"my money".)
++ )
++ ) Here is an example of how this strategy works when we are winning.
++ ) Assume that we started with $100,000 and we were risking $2,000 per
++ ) trade. Now we have $120,000. We would risk the original
++$2,000 PLUS 5%
++ ) (or pick another percentage) of the $20,000 of profit. So now we are
++ ) risking $3,000 per trade. At $130,000 we would risk $2,000 plus
++ ) 5% of $30,000 for a total of $3500.
++ )
++ ) Once we have reached a high level of profit (let's say we are at
++ ) $150,000 now) it is very important to scale back to the original
++ ) strategy where we risked about 2%. At $150,000 I would say the basic
++ ) account size is now $150,00 and we have no profits again. We will
++ ) now risk $3,000 per trade plus 5% of any equity above $150,000.
++ )
++ ) We are trying to be conservative when losing and extremely aggressive
++ ) when having winning streaks. But after each big winning streak we
++ ) become conservative again. That way we won't get into trouble after
++ ) big winning streaks.
++ )
++ ) I'm sure that many of you could take this basic idea and
++refine it and
++ ) make it better. I just like to keep things simple and logical and I
++ ) don't like the fixed fractional approach. I see no point in
++ ) recalculating the amount risked after every trade when losing.
++ ) The difference is usually not that great if you take small losses.
++ ) In the method I am proposing you only need to recalculate once you
++ ) reach a predetermined equity level (like $80,000).
++ )
++ ) Any comments? Are there flaws in the logic that I might have
++ ) overlooked? Any suggetions to improve on this idea?
++ )
++
++Hope you enjoy them.
++
++--
++ Mark Johnson Silicon Valley, California mark@xxxxxxxxxxxx
++
++ "... The world will little note, nor long remember, what we
++ say here..." -Abraham Lincoln, "The Gettysburg Address"
++
++
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